The Millennium Challenge Account: Rewarding Open Markets

Congress approved
$1 billion for the Millennium Challenge Account (MCA), a new
approach to foreign aid, on January 22. President Bush's mission
for the MCA is to "reward nations that have more open
markets…." To accomplish the President's mission, the
Millennium Challenge Corporation (MCC), which administers the
program, should focus on the progress of candidate countries
towards more open markets. The Heritage Foundation's annual
Index of Economic Freedom measures this progress
precisely.

Using Heritage's
Index of Economic Freedom as an objective guide, the MCC
could identify which candidate countries have been working hardest
towards the President Bush's goal. The Index measures
economic freedom by examining 10 factors: trade policy, fiscal
burden of government, government intervention in the economy,
monetary policy, capital flows and foreign investment, banking and
finance, wages and prices, property rights, regulation, and
informal market activity. As the Index has demonstrated for
the past 10 years, countries that open their markets have higher
GDP per capita.

The following
table shows the performance of the 49 countries - out of the 63
that have been designated by the MCC as being eligible to compete
for MCA grants - that are also covered by Heritage's Index.
The table uses Index data to divide the countries into
quartiles according to how much their overall Index scores
have improved over the past four years. Countries within each
quartile are listed from the biggest improvement to the smallest.
The first quartile represents countries that are progressing
fastest toward economic freedom and, therefore, would benefit most
from the MCA; the fourth quartile shows countries that have
improved the least and are the least deserving of MCA
grants.

Notice that
10-year average per capita GDP growth rates of these two groups
reveal a striking difference in escaping poverty. The countries in
the top quartile have almost six times the growth of those in the
bottom quartile. Consistent with the President's mission, they are
likely to eventually exit aid dependency.

The MCC board
should seriously consider that those countries receiving the
highest ranking in this table receive MCA funds this year. The
countries that are chosen this year will set a standard for years
to come. Economics, not politics, should be the measurement
standard for the MCA to carry out its mission.